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Coronavirus-Led Upheaval Puts 4 Jet Engine Makers in Trouble
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The global aviation sector is perhaps the most affected among all sectors, courtesy of the novel coronavirus outbreak that has literally wiped out demand for air travel. Consequently, airline companies are bearing the maximum brunt of the pandemic including aircraft giants like Boeing (BA - Free Report) and Airbus (EADSY - Free Report) .
To minimize losses, airline companies are delaying deliveries of new jets and canceling ongoing orders. As a result, apart from aircraft manufacturers, companies that support jet production like jet engine manufacturers have been dealt a heavy blow.
Gloomy Outlook
The International Air Transport Association (IATA) has lowered its projections for global air transport industry. Notably, per IATA’s latest estimate, 2020 global revenue losses for the air passenger business will be in the range of $63 -$113 billion, compared with its earlier projection of $29.3 billion (published in February 2020).
We believe such reduced projections are indicative of the consistently poor travel demand expected in rest of 2020. This implies that delay in delivery of new jets and dearth of new aircraft orders will also continue. Also, there will be no new contracts for aircraft manufacturers as well as parts makers. This might take a toll on their operational results as a lack of orders will lower revenues and storage of completed products will push up warehouse maintenance costs. Consequently, employers will resort to job cuts, and suspension of dividends and other payouts to reduce spending and shore up their finances.
Evidently, a handful of jet engine makers have already started to take such initiatives.
Jet Engine Makers in Focus
Herein we have selected four companies that are involved in jet engine manufacturing and are taking initiatives to reduce their expenses. The stocks, otherwise investment-worthy, have been declining significantly since Jan 20 when the first case of coronavirus was reported in the United States.
General Electric (GE - Free Report) is a world leader in jet engine manufacturing. Its aviation division recently announced its decision to cut 10% of its U.S. workforce, underscoring the deepening economic impact of the pandemic. This indicates that almost 2,600 GE employees will lose their jobs. This jet engine maker also plans to reduce some executive compensation and furlough half its domestic maintenance, repair and overhaul employees for 90 days. The company aims to save $500 million to $1 billion in 2020 through these initiatives. Its shares have lost 40.6%.
Raytheon Technologies’ (RTX - Free Report) Pratt & Whitney unit offers a range of jet engines to prominent jet makers like Boeing and Airbus. This unit’s prior parent company, on Mar 25, suspended all non-essential spending, including R&D funding and outlay on buildings and facilities. The company also stopped hiring and deferred employee bonuses. Its shares have lost 60%.
Rolls-Royce (RYCEY - Free Report) is another prominent jet engine manufacturer. Its Trent engine family is now in service on the Airbus A330, A340, A350, and A380, as well as the Boeing 777 and 787 Dreamliner. Per major media sources, this British aero-engine maker has decided to abandon its targets for profits, cash and deliveries, and suspend dividend. The company is also aiming to announce credit facilities in excess of approximately $1.22 billion to bolster liquidity. Its shares have lost 53.6%.
Safran (SAFRY - Free Report) in a joint venture with General Electric created CFM International, which gave rise to CFM56, one of the world's best-selling aircraft engine that power Airbus A320 single-aisle jet families.Its latest Leap engines now power Airbus A320 neo family. The French jet maker has decided to take “very significant” actions including halting capital expenditure, redefining research and development objectives, and cutting direct and indirect costs. Its shares have lost 45.2%.
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Coronavirus-Led Upheaval Puts 4 Jet Engine Makers in Trouble
The global aviation sector is perhaps the most affected among all sectors, courtesy of the novel coronavirus outbreak that has literally wiped out demand for air travel. Consequently, airline companies are bearing the maximum brunt of the pandemic including aircraft giants like Boeing (BA - Free Report) and Airbus (EADSY - Free Report) .
To minimize losses, airline companies are delaying deliveries of new jets and canceling ongoing orders. As a result, apart from aircraft manufacturers, companies that support jet production like jet engine manufacturers have been dealt a heavy blow.
Gloomy Outlook
The International Air Transport Association (IATA) has lowered its projections for global air transport industry. Notably, per IATA’s latest estimate, 2020 global revenue losses for the air passenger business will be in the range of $63 -$113 billion, compared with its earlier projection of $29.3 billion (published in February 2020).
We believe such reduced projections are indicative of the consistently poor travel demand expected in rest of 2020. This implies that delay in delivery of new jets and dearth of new aircraft orders will also continue. Also, there will be no new contracts for aircraft manufacturers as well as parts makers. This might take a toll on their operational results as a lack of orders will lower revenues and storage of completed products will push up warehouse maintenance costs. Consequently, employers will resort to job cuts, and suspension of dividends and other payouts to reduce spending and shore up their finances.
Evidently, a handful of jet engine makers have already started to take such initiatives.
Jet Engine Makers in Focus
Herein we have selected four companies that are involved in jet engine manufacturing and are taking initiatives to reduce their expenses. The stocks, otherwise investment-worthy, have been declining significantly since Jan 20 when the first case of coronavirus was reported in the United States.
General Electric (GE - Free Report) is a world leader in jet engine manufacturing. Its aviation division recently announced its decision to cut 10% of its U.S. workforce, underscoring the deepening economic impact of the pandemic. This indicates that almost 2,600 GE employees will lose their jobs. This jet engine maker also plans to reduce some executive compensation and furlough half its domestic maintenance, repair and overhaul employees for 90 days. The company aims to save $500 million to $1 billion in 2020 through these initiatives. Its shares have lost 40.6%.
Raytheon Technologies’ (RTX - Free Report) Pratt & Whitney unit offers a range of jet engines to prominent jet makers like Boeing and Airbus. This unit’s prior parent company, on Mar 25, suspended all non-essential spending, including R&D funding and outlay on buildings and facilities. The company also stopped hiring and deferred employee bonuses. Its shares have lost 60%.
Rolls-Royce (RYCEY - Free Report) is another prominent jet engine manufacturer. Its Trent engine family is now in service on the Airbus A330, A340, A350, and A380, as well as the Boeing 777 and 787 Dreamliner. Per major media sources, this British aero-engine maker has decided to abandon its targets for profits, cash and deliveries, and suspend dividend. The company is also aiming to announce credit facilities in excess of approximately $1.22 billion to bolster liquidity. Its shares have lost 53.6%.
Safran (SAFRY - Free Report) in a joint venture with General Electric created CFM International, which gave rise to CFM56, one of the world's best-selling aircraft engine that power Airbus A320 single-aisle jet families.Its latest Leap engines now power Airbus A320 neo family. The French jet maker has decided to take “very significant” actions including halting capital expenditure, redefining research and development objectives, and cutting direct and indirect costs. Its shares have lost 45.2%.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>